Law:

Section:

Section 32(1)(iii) of the Income-tax Act, 1961 - Depreciation - Balancing allowance - Machinery sold at price lower than written down value and machinery account credited with sale proceeds-loss not written off during relevant previous year, but shown in books on first day of next accounting year - Whether assessee entitled to deduction of loss in assessment year pertaining to previous year during which machinery was sold - Held, on facts, yes Facts In the accounting year ending 4-9-1968, the assessee sold a sizing machine at Rs. 29,500 and credited the machinery account with this amount. The written down value of this machine at the beginning of the year was Rs. 40,526 and its book value was Rs. 39,495. The difference of Rs. 9,995 between the book value and the realised price was not shown as a loss either in the balance sheet or the profit and loss account of the relevant year. It was, however, shown as a loss in the assessee's books on 5-9-1968, i.e., the first day of the next accounting year. In the assessment year 1969-70, the assessee claimed the difference of Rs. 11,026 between the written down value and the realised price as a loss which the ITO disallowed on the ground that the provisions of section 32(1)(iii) had not been fulfilled as the assessee had not actually written off the loss in its books in that year. The AAC held that the deficiency had only to be actually written off in the books and that it was not a condition precedent to the allowance. As the loss was actually shown in the next year, the AAC allowed the assessee's claim. The Tribunal confirmed the AAC's order observing that although, while entering the sale proceeds of the machinery in its books for the relevant year, the assessee did not separately reduce the debit balance in the machinery account as it should have done, the deficiency was actually reflected when the books showed that machinery worth Rs. 39,459 was sold for Rs. 29,500. On reference : Held 1. For the purpose of section 32(1)(iii), the sale of machinery, etc., is somewhat different from its being discarded, demolished or destroyed. In the latter case, there is no scope for making any automatic entries in the books as in…

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